In this article, I’m going to talk about how growing your home size could be what’s killing your financial goals, and share an example that will change your perspective on the way you spend forever. So let’s dive right in!

APARTMENT SIZE IMPACT

Let me work through an example that affects everyone – housing.

Your life may be at a stage where you want more room at home. You are working from home, recently married, or your family is expanding. Or you want a bigger place to host Saturday football get-togethers or your famous dinner parties. I get it. We all need some elbow room – adulting is hard!

Let’s look at the impact of moving from a 1-bedroom to a 2-bedroom apartment.

Since I am in Denver, we’ll use the current averages here:

Ave. Rent on a 1-Bedroom apartment – $1,702
Ave. Rent on a 2-Bedroom apartment – $2,337
The delta is $635/mo or $7,620/year

I don’t know about you, but that’s a huge cost increase per year.

If you were able to save that $635/mo and just put it in an interest-bearing savings account earning 3.5% (yes, these do exist – see here and here or the list of links below the article), you would have $7,755 in your account in just one year.

If you put that calculation out five years, using the same assumptions and a 3% rent increase year over year, you could save $44K in just five years. WOW!!!

HOME PURCHASE SIZE IMPACT

Okay, maybe you’re past the time for renting and want to buy. Maybe you are looking at an extra room for guests or an office to accommodate you working from home.

Again, for this example, I’ll use the Denver market costs.

The median listing home price per square foot in Denver in Spring 2023 is $367 (yes, I’m in a high-cost-of-living area 😛).

If you assume a standard bedroom size is 11’x11’ = 121 sf = $44,407 for this extra room.

So if you have to take out an additional $44,400 in mortgage to get an additional bedroom (not counting any circulation, hallways, etc. to get there), the extra cost on a 30-year mortgage at a 6.5% interest rate would be a total of $101,506 ($44,400 loan, $57,106 interest). Or an additional monthly payment of $280.

So this is significantly less than renting, but it certainly has a big impact with interest over the 30 years.

Looking at the full financial impact of this example, if you had put this $280/mo in a savings account earning just 3.5% each month for those 30 years, you would have $178,320.70 ($77,521 increase in value).

If you put that $280/mo away in an investment account earning 7%/year, that reinvests the earnings (compound interest), for those 30 years, then you would have $343,897 ($243,097 increase in value or interest) after the 30 years.

So the total for this ‘extra’ room over the 30 years is almost half a million dollars! ($101,506 + $343,897 = $445,403)

Yes, HALF A MILLION DOLLARS for 121 sf!

So small changes can make a huge difference in your life over time.

WHAT’S NEXT

So, if you want to know more on how to go about looking at your housing costs with purpose and structure your finances to find these budget sinkholes read the full article on Zero Based Budgeting HERE.